CHICAGO A judge has granted preliminary approval for the settlement of four class-action lawsuits filed by Quiznos Sub franchisees against their franchisor that could significantly alter the relationship of the feuding parties and cost the franchisor up to $100 million.
The proposed settlement could impact more than 6,900 individuals now associated with the Denver-based Quiznos system “and several thousand who have closed their franchises,” attorneys for franchisees indicated in court documents.
The cases revolve around the system’s supply chain and food costs, marketing and advertising funds and disputes among franchisees that agreed to but did not open locations and whether royalties are owed. The parties will return in June to U.S. District Court in Chicago for hearings to determine the fairness of the provisions in the proposed settlement.
Quiznos has denied all claims made in the lawsuits, which date back to 2006, and the settlement agreement involves no finding or admission of liability.
“This settlement is very good news for Quiznos,” said Ellen Kramer, a spokeswoman for Quiznos. “Litigation is a time-consuming process that shifts valuable time and resources away from our most important focus – great-tasting food, franchise owner profitability and customer satisfaction.”
The settlement is “the culmination of several years of contentious litigation and reflects what we believe is a positive step for the future of the Quiznos system,” said Justin M. Klein, one of the plaintiffs’ attorneys.
Klein’s firm, Marks & Klein LLP of New York and Red Bank, N.J., is representing the plaintiff franchisees along with the firm of Kravit, Hovel & Krawczyk SC of Milwaukee.
If left unchanged, the settlement would require Quiznos to change franchisor policies and provide concessions to franchisees. It could cost the sandwich-chain parent at least $23.6 million in franchisee payouts and forgiveness of unpaid royalties and advertising and marketing fees, according to court filings.
The settlement, as proposed, would require the following from Quiznos:
- To offer credits against the purchase of food or equipment to an estimated 2,300 operators who acquired franchises but never opened restaurants. The credits would equal the price of a franchise fee, which is typically $25,000, if the operators remain in the Quiznos system and open their locations. That tally could total $57.5 million for Quiznos. If the franchisees elect to leave the system, they would receive a refund of between 5 percent and 32.7 percent of the price of their franchise.
- To pay $19.4 million in contributions to the chain’s advertising and marketing trust funds through Dec. 31, 2012.
- To make additional payments of nearly $14 million, including up to $11 million for plaintiffs attorneys’ fees.
Quiznos has agreed not to oppose the relief sought in the settlement, the motion indicates.
The lawsuits span cases in Illinois, New Jersey and Wisconsin, and involve claims of violations of U.S. racketeering and corruption statutes, as well as transgressions of various state regulations. The charges are refuted by Quiznos. Additional settlement provisions include: Quiznos had 2008 U.S. systemwide sales of about $1.7 billion from 4,381 restaurants. Contact Alan J. Liddle at [email protected].
